 |
Web Hosting by Netfirms | Free Domain Names by Netfirms |
|
|
|
Stock House Posters View Of CLL
SUBJECT: Why has CLL taken a beating in last few days Posted By: PUNJABI Post Time: 1/7/2006 11:57
Assalam O Aliakum,
C:CLL - CONNACHER OIL & GAS LTD.
2006-01-06 T 3.76 3.59 3.64 -0.08 1583189
2006-01-05 T 3.82 3.70 3.720 -0.04 1031491
2006-01-04 T 3.89 3.75 3.76 -0.10 1091096If you analyze the trading data for CLL you will see that the stock has dropped for three consecutives trading days while the prices for crude oil & PDP share price is moving higher. Logically when all energy stocks move higher & when PDP in which CLL has 35 % ownership has multiplied in value CLL should have created new highs. With the pop in PDP share price the market value of CLL should automatically increase. Some how CLL has not benefited much from the huge jump in share price of PDP.
So what is happing to CLL. For a while now CLL instead of moving higher has come under pressure because of LKE deal. In the past UBS, CIBC & others were aggressively shorting CLL shares & buying LKE shares. They were working on the spread between tow stocks. The official short position of CLL now stands at 2725597 & should be higher as on today.
For the last three trading days a new short seller TD has being aggressively selling / shorting CLL & buying LKE shares. TD is running a computer program for this activity, which has put extra pressure on the stock.. You would at times see large number of 100 shares bids & offers from TD on CLL & LKE at same prices. TD has been the most aggressively swapper of shares so far. Last week the discount on LKE was much higher & did make sense to take advantage of the spread. But in the last few trading days TD has substantially reduced the spread to the point that it is now not that profitable to continue with swapping or holding Lke shares any more. CLL has lost value in the process but now it reduces further pressure on the stock. At the time of announcement of the deal the spread was about 17 %. On Thursday when I saw the spread reducing I sold most of my LKE position around $4.90 & I bought more CLL shares yesterday for about $3.61 with that money. At the reduced spread it was not worth holding Lke share any more. My logic is as follows.
As on yesterday's closing the spread between CLL & LKE has been reduced to about 5 % & at certain times during the trading day the spread had reduced to less than 4 % because of profit taking by some who panicked & sold.
CLL & LKE closing prices were $3.64 & 4.80 respectively. So based on last closing prices Lke shares are worth $5.04. ( .75 share of CLL = $2.73 + 2.31 cash = $ 5.04 ) Now Lke is trading at a discount of $.24 or about 5 %.
Now the BIG question is it is worth to continue to sell CLL shares for Lke shares. In my personal opinion it is not worth the hassle with this spread. In fact at this spread it has become a bad idea if you anticipate that CLL stock will move higher before the close of LKE deal.
Why swapping at this spread is now a bad idea.
You will pay about 1.5 to 2 % commission for buying & selling plus commission for borrowing CLL shares if swapper is a short seller.
A very large portion of $5.04 / share is in cash which is $2.31 or 46 %. So if the CLL moves higher LKE shareholder does not benefit for 46 % of its investment. That is dead money for an investor who wants maximum capital gains for its investment.
For short sellers. Now in order to short 100000 CLL shares one has to own about 134000 Lke shares in order to eliminate the price fluctuation risk. So in order to sell /short 100000 CLL you would get about $ 364000 & to buy 134000 LKE you would have to pay $643200. Not taking in to account the commissions. So one has to come up with extra $ 279200 in cash to eliminate the price fluctuation risk in the shares of CLL shares. One will get .75 CLL shares for every one LKE shares so to cover every single CLL share one has to buy more about 1.34Lke shares.
Is this all worth it at this spread. I do not think so. There is a strong chance that this swapping activity should reduce, as the spread remains small or reduces further.
At present CLL is trading at $3.64 with is well below last months average trading price of $3.81. Last month 45.8 million shares changed hand average trading price of $3.81 whcih means normally that the stock should have found some support around $3.81 area if it was not forced down by swappers & panic sellers who decided to lock in the profits. Some profit takers were waiting for 2006 to sell because they wanted to delay their taxes for another year.
This quarter is very important for CLL. The drilling has already started hopefully we will get some good results & a pop in the stock.
Lot of investors are waiting EUB approval. This approval is expected during this quarter. The approval will set lot of things in motion.